Measuring the elasticity of tax revenue: a Divisia index approach

This paper proposes a method, involving three steps, of estimating the elasticity of total tax revenue that does not require the traditional adjustment of historical revenue to eliminate the effects of discretionary tax measures. The proposed index of discretionary revenue is based on the principle of the Divisia index, which is widely used in measuring technical change. This method has two limitations. The main advantage of this method is that is uses only historical data and requires no specific information on the revenue effects or on the frequency of past discretionary tax changes. The results of the application of this new method of estimating tax elasticity to the United States, the United Kingdom, Malaysia, and Kenya are found to conform to the nature and overall direction of discretionary changes that have occurred in these countries during the periods of investigation. Ref., notes, summaries (English p. 191, French p. 195, Spanish p. 199).

Title: Measuring the elasticity of tax revenue: a Divisia index approach
Author: Choudhry, Nurun N.
Year: 1979
Periodical: Staff Papers
Volume: 26
Issue: 1
Pages: 87-122
Language: English
Geographic term: Kenya
Subject: taxation
Abstract: This paper proposes a method, involving three steps, of estimating the elasticity of total tax revenue that does not require the traditional adjustment of historical revenue to eliminate the effects of discretionary tax measures. The proposed index of discretionary revenue is based on the principle of the Divisia index, which is widely used in measuring technical change. This method has two limitations. The main advantage of this method is that is uses only historical data and requires no specific information on the revenue effects or on the frequency of past discretionary tax changes. The results of the application of this new method of estimating tax elasticity to the United States, the United Kingdom, Malaysia, and Kenya are found to conform to the nature and overall direction of discretionary changes that have occurred in these countries during the periods of investigation. Ref., notes, summaries (English p. 191, French p. 195, Spanish p. 199).